John Pasalis in Real Estate Roundup
Real Estate Bubble Talk
It's great to see the mainstream media stick to what sells papers this week.
Canadian Business, Macleans and the Globe and Mail all jumped on the real estate bubble band wagon (again) this week. Unfortunately I can't say that any of the articles were very insightful. Most were filled with "what if" type analysis. What if Europe collapses, what if China slows down, what if 50,000 households default on their mortgage at the same time if house prices drop by 25%.
The one argument worth mentioning here is the increase we are seeing in household debt. There has been a lot of talk about the fact that debt-to-income ratios in Canada are at an all time high, above 150%. But I often wonder wonder how economists adjust what a normal debt-to-income level should be as financial products change. For example, from 2006 to 2011 the federal government increased the maximum amortizion for mortgages from 25 years to 40 years.
To understand what this change meant, an average household that qualified for a $450K mortgage with a 25 year amortization would quality to borrow $550K with a 40 year mortgage. That means most home owners could now qualify to take on 22% more debt than they could with a 25 year mortgage.
Furthermore, Canadian Home Income Plan (CHIP) reverse mortgages have grown in popularity over the past ten years. Reverse mortgages allow seniors to use the equity in their home as income during their retirement. These financial products could very well explain why a recent CIBC report concluded that baby boomers are driving the increase in household debt we are seeing.
Rising debt-to-income levels are a function of the financial vehicles the federal governemnt and banks make available to consumers. As the CIBC report points out "there’s simply no magic number for the average debt-to-income ratio that automatically spells trouble".
Prediction: The Canadian housing market will crash (Canadian Business)
Connect the housing bubble dots: There could be trouble on CMHC’s horizon (Globe and Mail)
What happens when Canada’s housing bubble pops? (Macleans)
Really, an increase in household debt isn’t all bad (Globe and Mail)
Punch Drunk (CIBC)
Other Real Estate News
Ritz-Carlton five-star condos proving a tough sell (Toronto Star)
Realtysellers gets green light for lawsuit (Globe and Mail)
Canadian home prices dip for first time since fall, 2010 (Globe and Mail)
Canadian home prices slide for first time in a year (Financial Post)
Canada House Prices: Vancouver Second Least-Affordable City, International Study Says (Huffington Post)
Rob Carrick's tips for investing in real estate (Globe and Mail)
For Chinese buyers, ‘hongza’ rings death knell for property prices (Toronto Star)
Think Toronto's real estate is expensive? You're right—and it might be the Greenbelt's fault (Open File)
New towers leave empty space in iconic buildings (Globe and Mail)
As Toronto condos shrink, space grows precious (Globe and Mail)
Toronto’s toughest real estate markets? Jane and Finch, and the Bridle Path (Toronto Star)
The new-home market is shifting into high gear (Toronto Star)
MLS regions: Hot or cold? (Toronto Star)
Real-estate board warns of appliance thefts (CBC)
$8.3M condo breaks real estate history in Calgary (National Post)
Real estate may do an encore (Financial Post)
Real estate: Investing in the U.S. (Globe and Mail)
Toronto’s tiny cube house gets six offers – and a buyer with two children (Toronto Star)
Dr. Doom reveals what lies ahead and where he’s stashing his money (Globe and Mail)
January 27, 2012
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